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5 Tips on How to Pay Your Contractor

You might be wondering, what is the best way to pay your contractor when planning a home renovation job? Here are five suggested tips that will help to protect your interests:

1.   Have a contract with a clear payment schedule

It’s important to outline the responsibilities of both parties prior to starting any work, to avoid any miscommunications in regards to contract payment schedule.

2.   Pay when the job is done

Typically the contractor payment schedule should state that the final payment is due upon completion. It’s not recommened that you pay before the job is completed to your satisfaction. Holdbacks are subject to the Construction Lien Act.

3.   Resist the urge to pay in cash

Some renovation contractors may offer an incentive for cash payment (ie. no HST). Beware, as this may leave you in a bad situation if something goes wrong. If they aren’t declaring income from your job, you may not be covered by their liability insurance. Always ask to see proof of insurance, and proof of HST registration. In addition to protecting yourself, Often, “cash job” contractors are typically not contributions to the Workplace Safety and Indurance Board (WSIB). Legitimate contractors pay about 9% of their profits to WSIB to protect themselves while on the job, and that is usually why legitimate contractors may charge more. If you choose the underground cash economy, be aware of the consequences. A workman who gets injured on your property, without coverage, may turn to you for a disability payout.

4.   Always ask for a receipt

Some home renovations (especially those done for medical reasons) are tax deductible and you must be able to support your claims with a receipt for tax purposes. It is especially important to have a receipt for proof of cash paid, where there would otherwise be no paper trail.

5. Choose a payment structure that works for your specific project

Renovation Contractors typically charge clients in one of two ways; the “cost-plus” model, or by “management fee”. There are pros and cons to each method for both you and your contractor. The “cost-plus” model is when the client pays for all expenditures, and the contractor charges a percentage on top — typically 15%. A “management fee” model is when the client pays for all expenditures and will also pay your contractor a flat rate fee, usually on a monthly basis.

Regardless of which payment structure you both agree upon, these are some basic rules to help you get off to a good start. To find the right contractor for your home renovation needs,  search for one of our select service pro’s listed on our website directory.

What lessons have you learned from paying your contractor?

By Shelley Kanitz

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